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Indonesian Islamic banks’ market share persistently low

Jakarta—The market share of the country’s Islamic banks has remained low at less than 5 percent in the past several years despite efforts to promote Sharia financial services to the mostly Muslim Indonesian population, observers said. Indonesians are still reluctant to open accounts or carry out transactions through Sharia-compliant banks as they are mostly still unaware of the advantages of Islamic banking services, Islamic finance expert Irfan Syauqi Beik said.
Another factor that has caused the Sharia banks’ stagnant low market share is their weak financing capacity, he said in Jakarta on Monday. He said that most of the existing Islamic banks are undercapitalised so that they are unable to expand their business rapidly. Indonesia, as the country with the world’s largest Muslim population, is quite a promising market for Sharia banks because the banks offer banking services that are based on Islamic principles. “Sharia banking is based on profit-and-loss sharing, so the return is Halal,” Irfan said, adding that the banks also avoid using “interest” in its services, which according to Islamic law is prohibited.
Sharia prohibits acceptance of specific interest or fees for loans of money, which is known as riba (usury). The market share of the Islamic banks has been below 5 percent in the past several years.—Agencies